/ Money

Should we get more say on bankers’ bonuses?

Many of the UK’s biggest companies are handing out big pay packets, despite providing poor returns to shareholders. In this guest post, FairPensions argues that fund managers need to listen to your views.

Banks have become poster-boys for pay and bonuses which have not been linked to performance.

And as Barclays’ annual general meeting (AGM) rolled round again this year, the issue didn’t disappoint, with the row over Bob Diamond’s £17m payout – including a £5.7m ‘tax equalisation’ payment – dragging executive pay back into the headlines.

Fund managers need to take stronger action

On Friday 27 April, 26% of shareholders voted against the Barclays’ package – a massive rebellion for a UK company, and far above last year’s 9.5%.

But did you know that a good chunk of the shareholders voting on the Barclays’ payouts were doing so with your money?

If you have a pension or a stocks-and-shares Isa, you have a stake in Britain’s biggest companies – almost certainly including Barclays. In the largest companies excessive pay at the top hits you directly in the pocket – especially if it ends up damaging company performance more widely.

The government is relying on these shareholders to rein in excessive pay. Yet, although more investors are taking a strong line on rewards for failure, there’s still a reluctance to vote against management and to ensure that they link pay to providing returns to shareholders.

Even at Barclay’s, the rebellion wasn’t strong enough to defeat the remuneration report. This is not too surprising when you consider that voting rights are generally delegated to fund management firms – many of whom have conflicting business relationships with the companies concerned, and some of whom are themselves among the worst offenders when it comes to not linking pay to performance.

Have your say on high pay in the biggest companies

So did your fund try to veto Diamond’s £17m, or did it wave it through? At the moment, they don’t have to tell you. Pension funds and Isa providers aren’t legally obliged to publish their votes after company AGMs.

But this week has seen the launch of our new campaign at FairPensions – Your Say on Pay – giving you the chance to ask your pension provider or fund manager what they’re doing about high pay this AGM season. The way I see it, if we want big shareholders to act in our interests, we need to be proactive in holding them to account. FairPensions thinks that savers should have a right to know how their fund manager or pension provider has voted.

But what do you think? Should Bob Diamond have got his bonus? Do you want a say in how the shareholder rights attached to your money are used – or should it be left to the experts?

Which? Conversation provides guest spots to external contributors. This is from Christine Berry, Policy Officer at FairPensions – all opinions expressed here are her own, not Which?

Comments
Profile photo of Patrick Taylor
Member

Quite a complicated matter but there is an answer is actually a lot simpler and already exists.

I am talking about customers boycotting/moving their accounts from Barclays. Rather elegantly this threat will also affect the potential profitability of Barclays and therefore cast a pall over the share price. This will upset both personal shareholders and investment companies – perhaps to the point that they take action on pay. Losing deposits makes Barclays pays more for the funds it borrows from the money market to lend to customers.

Incidentally if RBS had not been stupider than Barclays the ABNAmro deal would have nailed Barclays. Quality management?

However it is the customers of Barclays, or their family and acquaintances who can make this bite.

However to turn the screw more it would be nice if one had more control over the ethics of how your money is invested – as in those firms who will not invest in armament companies, tobacco etc. Allowing people some measure of portfolio choice would be good.

Member
Ally says:
9 May 2012

Certainly is complicated – but that should not put us off!

Customers vote with your feet.

Shareholders are the owners and should have greater rights regarding voting on key issues such a s remuneration albeit with legal advice to prevent breaches of contracts.

Institutions and other collective shareholders should be obliged to report their voting – which is on behalf of their own shareholders, be they other institutions, collectives or individuals – maybe via their annual reports.

Individuals and any organisation that is not responsible to or acting for others should not be obliged to publish.

Only then will we get a proper response to wishes and reduced reliance on the old boy network of back scratching!

Vince Cable would get my support on this!

Profile photo of gill manchester
Member

Two years ago, after banking with Barclays for more than 25 years, I voted with my feet and closed my account telling their customer services manager that the ridiculously high remueration of their executives was the main reason for my decision. Falling service standards was another. I don’t think for a minute that the loss of one (hitherto) loyal customer made any difference to anything. If loyalty meant anything we would see better deals for loyal customers instead of for new customers.

Profile photo of Christine Berry
Member

Lots of interesting developments on this over the past week or so, with Aviva becoming only the fourth FTSE 100 company ever to have its remuneration report defeated: http://www.bbc.co.uk/news/business-17938865

Definitely agree that customers of banks should vote with their feet if they are unhappy about the way the company is run. But the high pay problem is not restricted to banks and most people don’t realise their pensions give them a stake in many more companies besides the ones of which they are direct customers. We’d like to see a world where holding your pension provider to account for what’s done with your money is just another way of consumers making their voice heard – boycotting companies directly is of course another!

Profile photo of john 67
Member

I have been on the “Your Say On Pay” site above and find it very difficult to use. Most People have more than one ISA provider and some may have shares in the companies involved in these exorbitant pay deals so it should be easier to list them.

Perhaps the pay of Fat Cats should be directly linked to the value of the shares or the dividends paid to investors. That way they only win if we win. This is a simple concept and easily understood by most investors.

Member
Rosie says:
15 May 2012

Senior executives should be treated exactly the same as their employees and junior to senior managers. If they fail to perform, they should receive NO pay increase or bonus (and be subject to disciplinary action and/or immediate dismissal without compensation). If they do perform, then the percentage of the pay increase or bonus should be no higher than the percentage paid to the employees and managers. That percentage would still give them a large incease and bonus if they perform! (Though their salaries are way too high when compared to the prime minister and other positions with far more critical responsibilities).
At the end of the day, these executives are still employees and managers who rose up through the ranks themselves, and not some gods who have superhuman powers to make a company fail or succeed! If the company profits increase, it’s as much (if not a lot more!) about the people reporting into the directors as it is the chief execs and directors. Why are so many people hoodwinked into believing otherwise??!

Member
JR says:
16 May 2012

I am always puzzuled by the idea that the higher your salary is, the more likely it is that you’ll get a bonus. The majority of us get a salary – full stop!. If we perform well then we keep the job and if its very well then maybe we get promoted to a higher salary – but still full stop!. If we don’t perform well then we get sacked or demoted to a lower salary – full stop!. I would have thought that for a salary in the six figure bracket then we should be expecting quite a lot so why do we need to pay a bonus on top of it when he or she does a good job. We were expecting a good performance in setting such a high figure in the first place. Or am I a bit old fashioned.

Member
FINSBURYPARKER says:
1 July 2012

As far as ‘Bonuses’ are concerned, that’s the concern of the ‘Shareholders’, provided its a ‘Privately owned Bank!

As long as these ‘Private’ Banks pay out nice large juicy Dividends, the shareholders are hardly likely to bite the hand that feeds them, are they?

A similar situation occurs within the realms of the Union Barons, as long as their member get a nice slice of the action, their members really don’t care if their Top brass get huge Salaries, and live in mansions!

A different kettle of fish exists regarding those Banks where the public has a large investment via their Taxes!

That in turn has its own problems, turn the screws to hard on them, and the people that are capable of turning it around to get in the black again will move to pastures green.

The term ‘Rock & Hard Place’ applies here?

So, I guess a corruption of that old adage, ‘Oh what a tangled web we weave when Banks practice to deceive’ is apt for the situation we find ourselves in.

How to put things to rights?…..Ahhh,…..There lies ye rub!

‘Give me control of a nations money supply, and I care not who makes it’s laws’!

Amschel Rothchilds

Yup!….That sounds about right!